German banks significantly tighten lending policies in late 2025
German banks significantly tightened their lending policies for corporate and household loans in the fourth quarter of 2025, exceeding the previous quarter's restrictions. This tightening was driven by decreased risk tolerance and an increase in credit risk.
Stricter credit standards across all segments
German banks tightened their lending policies for corporate loans in the fourth quarter of 2025 to an extent not seen since 2023, according to the latest Bank Lending Survey.
Policies for private household loans also became more restrictive, with both segments seeing a stronger tightening than in the previous quarter.
The net share of banks reporting stricter corporate loan standards rose to +16 percent (from +10 percent), while private housing loans saw an increase to +11 percent (from +4 percent), and consumer loans to +11 percent (from +7 percent).
This tightening was most pronounced for the real estate, manufacturing, and construction sectors, and affected large companies more significantly than small and medium-sized enterprises.
Banks attributed these adjustments primarily to a reduced risk tolerance and a further increase in credit risk, citing the general economic situation and specific industry factors.
Demand holds up, regulatory headwinds persist
Despite stricter policies, credit demand for corporate loans and private housing finance saw a slight net increase in Q4 2025, though below expectations.
Demand for consumer loans remained unchanged.
Banks attributed this to increased financing needs for businesses and improved housing market prospects.
Regulatory and supervisory requirements have exerted a restrictive influence on lending policies across all segments over the past year and are expected to continue for the next twelve months, including new Basel III rules.
Non-performing loan ratios and other credit quality indicators also contributed to the restrictive stance.
Banks anticipate further tightening of policies across all credit segments in the first quarter of 2026.
Risk aversion shapes future lending
The persistent tightening of lending policies, despite some demand, underscores a deep-seated risk aversion among German banks.
This cautious stance, reinforced by ongoing regulatory adjustments and rising NPLs, suggests a structural shift in credit provision.
Such sustained restrictiveness could significantly constrain economic recovery and investment in the coming quarters.